The Great, the Awful and the Scary

Never before in my lifetime have I seen such a stark contrast between good stocks surging in great glory … and bad stocks plunging into an awful nosedive!

I see energy stocks rise virtually nonstop, while airlines and auto manufacturers fall with equal persistence.

I see many small- and mid-cap companies make new all-time highs, while many bellwether companies barely recover from bear market lows.

And I see many investors frightened by old, familiar ghosts that are returning and strange demons that are newly emerging: Surging fuel costs and rising interest rates. Worldwide terrorism and global warming.

The Big Picture

All of these threats may seem random and disconnected. But they are not. They are intricately interwoven in a single, systemic paradox:

The exponential growth of human population and modern civilization has stretched the earths resources to its limits. It will take time perhaps decades for our technology to catch up and our culture to make the needed adjustments.

In the interim, the consequences are inescapable:

Consequence #1.A chronic and acute SCARCITY of natural resources, driving UP the cost of virtually all commodities.

Already, two of the most vital factors for the worlds industrial economies crude oil and copper are surging.

Crude oil was close to $10 per barrel in 1988. By 2000, it had more than tripled; and right now, it is up more than SIX fold, with no end to its rise in sight.

And in the past few days, despite MAJOR releases of strategic oil reserves by 26 countries, all weve seen is a MINOR, temporary decline in prices that changes nothing in the long-term trend.

Almost inevitably, whenever any government intervenes to try to artificially force prices down, it soon backfires.

Smart investors and traders see it as a gift an opportunity to buy at a discount and jump in for the next major surge.

This is especially true today in the oil market.

Reason: The release of supplies from strategic reserves is unsustainable. Its a one-time gesture that cannot be repeated.

But the demand and scarcity for oil are relentless. Nothing is being done to change this. Nor does anyone among OPEC countries, non-OPEC countries or oil consuming countries appear willing to do so.

Result: Any correction in oil, no matter how sharp, will be followed by an even sharper upsurge.

The price of copper, another critical commodity, has been following a similar pattern.

In 2001, it dipped down to nearly 60 cents a pound. Now, it has surged to as high as $1.80 a pound, a THREE-fold increase.

Platinum, another critical metal, has been on a similar path.

The implication: Other metals and precious metals such as aluminum, silver and gold will follow.

Consequence #2. An OVERABUNDANCE of financial assets, driving DOWN the value of money and debts.

While the worlds oil wells and mines cant produce enough, the worlds public and private banks are pumping out their product money and debt with wild abandon.

So naturally, the value of the money is falling.

Especially vulnerable: The U.S. dollar.

When measured against a basket of other currencies, the U.S. dollar has been declining for nearly FIVE years, with the U.S. Dollar Index falling from over 1.20 in early 2000 to about 0.80 last year.

This year, the dollar staged a modest rally.

But last month, even that feeble attempt to recover appears to have run out of gas.

The dollar has sagged again.

Its long-term decline has resumed.

Now, expect a nosedive to new lows.

And when measured against a basket of commodities, the dollars decline is even more severe.

I showed you how crude oil and copper are surging. And youve seen how world commodity indexes have marched higher. Well, the flip side of surging commodities is falling currencies. This means that ALL world currencies are weak, and the dollar is even WEAKER!

But currencies are not the only paper assets being created in great abundance. Also gushing out of the worlds paper-money factories are an abundance of DEBTS.

TheU.S.
government is manufacturing debt in wild abandon debts to finance the still-bulgingU.S.
federal deficit … and still more debts to finance the record-smashingU.S.
trade deficit. Western Europe,Japan
,China
and emerging nations are doing pretty much the same.

The inevitable result: The value of debts bonds, mortgages and loans will fall.

Consequence #3. The vivid discrepancy between rising natural resources and falling financial assets is the single most important factor behind a similar schism in the stock market.

Companies closely tied to natural resources, such as those extracting and refining natural resources, are rising in value and should continue to do so.

Conversely, companies linked to financial assets, such as banks and insurance companies, have begun to fall in value, a trend that should also continue.

In recent e-mails, Ive shown you how energy stocks have been surging while financial stocks have been plunging.

Schlumberger, for example, a leading oil service company, has surged from as low as 35 and change in October 2002 to as high as 87.68 last week.

On Friday, in response to the temporary dip in oil prices, it fell three points to 83.88. And this week, its setback may continue. But its long-term uptrend of the past three years remains firmly intact.

Fannie Mae, meanwhile, typifies what I see happening now and in the future with financial stocks. It has plunged from over 89 in late 2000 to as low as 49.20 last week. Friday it was up by a meager penny. And this week, it could enjoy a temporary rally. But regardless of these near-term fluctuations, Fannie Mae remains perilously close to a major new breakdown.

The Schizophrenic Stock Market

The big picture that emerges is a split personality in the U.S. stock market that is…

Driving index investors crazy. They try to use the shotgun approach. They try to make money in the market as a whole with mutual funds tied to the Dow, the S&P, the Nasdaq or a diversified portfolio of stocks. But since these indexes include BOTH the stars and the dogs of the stock market, the end result is disappointing.

Giving selective investors the chance to make a not-so-small fortune. By using a sharpshooter approach, they are targeting strictly the stocks that are going up, avoiding or even selling short the stocks that are going down. Since these trends are now so powerful and long lasting, the opportunities are boundless.

And creating an urgent need for tools that can help investors make the right choices. Picking the good sectors to buy and bad sectors to avoid such as energy stocks vs. banking stocks is just the first step. The next is to pick the best companies with the best financials and the most astute managers … while also identifying the worst.

How to Reduce Your Risk andImprove Your Performance

Yesterday, Larry specifically warned you about the dangers of holding stocks that are vulnerable to the energy crisis. And he told you that, given the urgency of this situation, I would jump in today to give you a tool to help identify the stocks that are the most vulnerable.

How was it possible for a relatively small firm like ours to outperform the largest and most prestigious firms in the country?

Sorry to disappoint you, but we DONT outperform them all the time.

There are several other skilled independent research firms in the country. And among them, our rankings will vary depending on the time period you look at as well as other factors.

Nor do we have a magic formula. Our primary strength, I believe, is our diligence in removing bias from our research and in combining the best of fundamental research with the best of quantitative analysis.

Unlike some leading rating agencies and research organizations, we refuse to accept fees for our ratings from the rated companies. We have no consulting relationships with them. And we have no investment banking business. Our loyalty is strictly to you, our readers.

Our Weiss Ratings affiliate has also done a great job in removing our own personal biases about the market from our ratings. The approach to ratings is neither bullish nor bearish. All of our ratings are based exclusively on the FACTS about each company or industry.

Our rating scale is simple: A is excellent, B is good, C is fair, D is weak and E is very weak.

The Weiss Ratings Scale

Wall Street’s Interpretationof the Weiss Scale

A
B
C
D
E

Excellent
Good
Fair
Weak
Very Weak

“buy”
“buy”
“hold”
“sell”
“sell”

Plus, Wall Street has its own interpretation of our ratings: Our A and B grades are buys, our C is a hold and our D and E are sells. This makes sense, and we accept it.

Before you make any final decisions about stocks youre holding or stocks youre interested in, you should always check the stocks ratings from an independent research firm, whether its ours or someone elses.

Our ratings alone cant guarantee profits from a trade or protection against losses. Nor should they be the only factor you consider. But theyre powerful tools that should greatly improve your results overall.

Ditto for …

The Weiss Ratings of Mutual Funds, Insurance Companies and Banks

The Weiss Watchdog will also watch over your mutual funds, money market funds, bond funds, and exchange-traded funds (ETFs). And dont be surprised if the Watchdogs opinion on these funds sometimes differs from mine.

As I told you, the Weiss ratings are neither bullish nor bearish. They are based exclusively on the known facts about each individual company or industry not on economic forecasts, whether mine or anyone elses.

Plus, the Weiss Watchdog will also keep guard on your insurance companies or banks.

Indeed, the Weiss insurance company ratings were ranked #1 in the nation by the United States Government Accountability Office (GAO).

According to the GAO, the Weiss insurance ratings beat those of its closest competitor, A.M. Best, by a factor of three to one in warning consumers of future financial difficulties, and all other rating agencies, S&P, Moodys and Duff & Phelps (now Fitch) were no contest.

Overall, the Weiss Watchdog covers:

6,000 listed stocks, updated weekly.

14,000 mutual funds of all types, also updated weekly

4,000 insurance companies, updated quarterly or as needed

9,000 banks, S&Ls and savings banks, updated quarterly or as needed

Thats a grand total of over 33,000 ratings continually updated … frequently changing … and often implying some very significant actions that you need to take right away to protect yourself from losses and to maximize your profit opportunities.

Register at www.weisswatchdog.com. The service is free for Money and Markets readers for up to three companies. And for more companies, the monthly charge is nominal.

Good luck and God bless!

Martin

About MONEY AND MARKETS

MONEY AND MARKETS (MAM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Larry Edelson, Tony Sagami and other contributors. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MAM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MAM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Contributors include Marie Albin, John Burke, Michael Burnick, Beth Cain, Amber Dakar, Scot Galvin, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.